HRA Exemption: How It's Calculated (with Examples)
Updated for FY 2025-26 (AY 2026-27) · Old regime only
House Rent Allowance (HRA) is often the single largest tax break for salaried renters — but only in the old tax regime. The new regime, which is the default from FY 2025-26, does not allow HRA exemption at all. So if you pay substantial rent and receive a large HRA, that alone can tip the old-vs-new decision in favour of the old regime. This guide explains exactly how the exemption is worked out, with two full examples, the documents you need, and the rules for renting from parents.
The least-of-three rule
Your HRA exemption under Section 10(13A) is the lowest of these three amounts:
- Actual HRA received from your employer during the year.
- Rent paid − 10% of basic salary.
- 50% of basic salary if you live in a metro city, or 40% for a non-metro city.
"Basic salary" here means basic pay plus dearness allowance (if your DA forms part of retirement benefits). The amount left after subtracting the exempt portion from your total HRA is taxable.
Metro vs non-metro: which rate applies?
Only four cities are treated as metros for HRA. This single point changes your exemption by 10 percentage points of basic salary, so it matters:
| Category | % of basic salary | Cities |
|---|---|---|
| Metro | 50% | Delhi, Mumbai, Kolkata, Chennai |
| Non-metro | 40% | All others — Bengaluru, Hyderabad, Pune, etc. |
Worked example 1 — metro
Basic salary ₹6,00,000 · HRA received ₹2,40,000 · Annual rent ₹3,00,000 · Mumbai (metro):
| Limb of the rule | Amount |
|---|---|
| 1. Actual HRA received | ₹2,40,000 |
| 2. Rent − 10% of basic (₹3,00,000 − ₹60,000) | ₹2,40,000 |
| 3. 50% of basic (metro) | ₹3,00,000 |
| Exempt HRA (lowest) | ₹2,40,000 |
The least is ₹2,40,000 — the entire HRA is exempt, and nothing is added to taxable income.
Worked example 2 — non-metro, partial exemption
Basic salary ₹5,00,000 · HRA received ₹2,00,000 · Annual rent ₹1,80,000 · Pune (non-metro):
| Limb of the rule | Amount |
|---|---|
| 1. Actual HRA received | ₹2,00,000 |
| 2. Rent − 10% of basic (₹1,80,000 − ₹50,000) | ₹1,30,000 |
| 3. 40% of basic (non-metro) | ₹2,00,000 |
| Exempt HRA (lowest) | ₹1,30,000 |
Here the least is ₹1,30,000. The remaining ₹70,000 of HRA (₹2,00,000 − ₹1,30,000) is added to taxable income and taxed at your slab. Notice it is usually limb 2 — rent minus 10% of basic — that caps the exemption when rent is modest.
Our calculator computes your HRA exemption and the tax it saves automatically.
Try it with your numbers →Documents you should keep
- Rent receipts for the year, plus a rent agreement.
- Your landlord's PAN if annual rent exceeds ₹1,00,000 (about ₹8,333/month). No PAN? Get a signed declaration from the landlord.
- Proof of payment — bank transfers are best; large cash rent is hard to defend in scrutiny.
Special situations
No HRA in your salary? Use Section 80GG
If your salary has no HRA component, or you are self-employed, you can still claim rent under Section 80GG. The deduction is the least of: ₹5,000 per month, 25% of total income, or rent paid minus 10% of total income. You must not own a home in the city where you live and work.
Paying rent to parents
This is allowed and fully legitimate — if it is genuine. Keep a rent agreement, pay by bank transfer, and ensure your parents declare the rent as income in their own return. Rent paid to a spouse is not accepted.
Living with family but no rent paid
HRA exemption only applies to rent you actually pay. If you pay no rent (for example, living in your own or family home for free), no HRA exemption can be claimed and the full HRA is taxable.
HRA and the old-vs-new regime decision
Because HRA is exempt only in the old regime, a renter with a large HRA effectively gets a big head-start there. Combine HRA with 80C, 80D and home-loan interest and the old regime can comfortably beat the new one. But if your rent (and HRA) are small, the new regime's lower rates usually win. Don't decide by gut — compare both regimes or run your salary through our calculator, which factors in your HRA exemption automatically.
Frequently asked questions
Is HRA exemption available in the new tax regime?
No. HRA exemption under Section 10(13A) is available only in the old regime. The new regime (default from FY 2025-26) disallows it. If your rent and HRA are large, the old regime may save you more — compare both first.
How is HRA exemption calculated?
It is the lowest of three amounts: actual HRA received; rent paid minus 10% of basic salary; and 50% of basic (metro) or 40% (non-metro). The smallest is exempt; the rest of your HRA is taxable.
Which cities count as metro for HRA?
Only Delhi, Mumbai, Kolkata and Chennai. Residents there use 50% of basic; everyone else — including Bengaluru, Hyderabad and Pune — uses 40%.
Do I need my landlord's PAN to claim HRA?
Yes, if total annual rent exceeds ₹1,00,000 (about ₹8,333/month). If the landlord has no PAN, you need a signed declaration from them.
Can I claim HRA if I pay rent to my parents?
Yes, if it is genuine — keep a rent agreement, pay by bank transfer, and have your parents declare the rent as income. Rent paid to a spouse is not allowed.
What if my salary has no HRA component?
You can claim rent under Section 80GG instead — the least of ₹5,000/month, 25% of total income, or rent minus 10% of total income.